U.S. Markets close in 5 hrs 46 mins

Why Planet Fitness Stock Jumped 16.9% in March

Steve Symington, The Motley Fool

What happened

Shares of Planet Fitness (NYSE: PLNT) climbed 16.9% in March, according to data from S&P Global Market Intelligence, enjoying positive momentum following its strong quarterly results in late February.

Planet Fitness stock has steadily rallied since its February 26, 2019 report. In it, the company revealed 30% growth in fourth-quarter revenue, to $174.4 million, helped by a healthy 10.1% increase in comparable-store sales (or comps). On the bottom line, Planet Fitness' adjusted net income climbed an even-better 38% to $32.5 million and -- with the help of stock repurchases over the past year -- rose 42% on on a per-share basis to $0.34.

Planet Fitness store front

IMAGE SOURCE: PLANET FITNESS.

So what

The underlying drivers of Planet Fitness' business were encouraging. Franchisees opened another 98 stores in the fourth quarter, bringing its total count to 1,742 locations. But management teased that the company should still be able to more than double its number of stores in the U.S. alone over the long term. 

It also helped that Wall Street's subsequent reaction was overwhelmingly positive, including reiterated "buy" ratings and price-target increases the following day from both DA Davidson (from $60 to $70 per share) and Roth Capital (from $55 to $65 per share). Both firms lauded Planet Fitness' accelerated store openings, solid comps growth, and opportunity to expand its footprint further while leveraging member-price and franchise royalty-rate increases.

To that end, in early March Planet Fitness spurred its momentum by announcing a new strategic partnership to initially open up to 10 Planet Fitness stores adjacent to Kohl's (NYSE: KSS) stores around the country. That might not sound too ambitious at this point, but the company was quick to note the collaboration includes "the opportunity for additional locations in the future."

Assuming all goes as planned, the adjacent Kohl's stores should provide a strong source of incremental traffic and membership growth for the newest Planet Fitness locations.

Now what

Looking ahead to 2019, Planet Fitness told investors to expect revenue growth of roughly 15%, assuming comps growth in the high-single-digit percent range. That should translate to an 18% increase in adjusted net income, and 25% growth in adjusted net income per share. 

Here again, each of those targets was well above Wall Street's consensus forecasts at the time, providing extra fodder for investors to continue bidding up Planet Fitness stock last month in response. Let it suffice to say, then, if the company can extend its streak of under-promising and over-delivering in the coming year, I think its share price should continue to follow suit.

More From The Motley Fool

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Planet Fitness. The Motley Fool has a disclosure policy.